Nov. 23 (Bloomberg) -- Merck & Co., the second-largest U.S.
drugmaker, will pay $950 million and a unit of the company will
plead guilty to a criminal misdemeanor charge to resolve a U.S.
probe of its illegal marketing of the painkiller Vioxx.

Merck Sharp & Dohme will plead guilty to one count of
misbranding Vioxx, the company and U.S. prosecutors said
yesterday. The company will pay a $321.6 million criminal fine
and $628.3 million to resolve civil claims that it sold Vioxx
for unapproved uses and made false statements about its
cardiovascular safety.

The “resolution appropriately reflects the severity of
Merck’s conduct and is yet another reminder that the government
will not tolerate misconduct by drug companies that bend the
rules and put patient safety at risk,” Carmen Ortiz, the U.S.
attorney in Boston, said yesterday in a statement. Prosecutors
in her office led the seven-year investigation into the
company’s Vioxx marketing tactics.

Approved by the Food and Drug Administration in 1999, Vioxx
became Merck’s third largest-selling drug by 2003, generating
$2.5 billion in annual sales. The company pulled Vioxx off the
market in 2004 after a study found it posed an increased risk of
heart attacks and strokes.

Patient Lawsuits

The company, based in Whitehouse Station, New Jersey,
already paid $4.85 billion to settle thousands of patient
lawsuits claiming injuries, and another $1.9 billion for legal
costs. It set aside $950 million in October 2010 for the
criminal settlement announced yesterday.

“We believe that Merck acted responsibly and in good faith
in connection with the conduct at issue in these civil
settlement agreements, including activities concerning the
safety profile of Vioxx,” Bruce N. Kuhlik, the company’s
general counsel, said in a statement.

The shares fell 38 cents, or 1.1 percent, to $33.43 at 9:41
a.m. in New York Stock Exchange composite trading.

Merck Sharp & Dohme will plead guilty to violating the
Food, Drug and Cosmetic Act by distributing a misbranded drug,
the Justice Department said. The company will admit that between
May 1999 and April 2002, it sold Vioxx for rheumatoid arthritis
when it was not approved by the FDA for that use. Merck got such
an approval in April 2002.

Warning Letter

Before that approval, the company touted Vioxx to
physicians for rheumatoid arthritis, prompting the FDA to send a
warning letter on Sept. 17, 2001. The letter said Merck made a
misleading claim suggesting that “Vioxx is effective for the
treatment of rheumatoid arthritis when this has not been
demonstrated,” according to the criminal charge that Merck
Sharp & Dohme will admit in federal court in Boston.

The charge also cites eight instances of sales
representatives recording in their notes of calls to physicians
how they promoted Vioxx for rheumatoid arthritis.

As part of the plea agreement, prosecutors acknowledged
that “there was no basis for a finding of high-level management
participation in the violation,” Merck said in a statement.

Merck previously disclosed that federal prosecutors in
Boston had identified the company in March 2009 as a target of a
grand jury investigation. Prosecutors began examining the
company’s handling of internal research into Vioxx’s heart-attack and stroke risks and the company’s marketing tactics in
selling the drug starting in 2004, the company said yesterday.

The company won 11 of 16 Vioxx lawsuits at trial before
agreeing in 2007 to create the $4.85 billion settlement fund.
The accord called for the company to pay about $4 billion to
resolve heart-attack claims and about $850 million to settle
stroke suits, according to court filings.

Potential Harm

Former Vioxx users who sued in state and federal courts
claimed Merck didn’t adequately disclose safety data to the FDA,
failed to properly warn doctors and patients of the drug’s
risks, and misrepresented the potential harm in marketing
materials.

They accused Merck officials of withholding data in 2000
about a clinical trial that found Vioxx caused five times more
heart attacks than another painkiller and publishing misleading
and inaccurate information about the drug’s health risks.

The civil claims, which were brought by both state and
federal governments, focused on the sale of Vioxx for unapproved
uses and misleading statements Merck officials allegedly made
about the painkiller’s safety, according to court filings
outlining the settlement.

Sales Practices

Regulators said Merck employees made “false
representations concerning the safety of Vioxx to state Medicaid
agencies” on which state officials relied in deciding to cover
Vioxx prescriptions, according to the court filings. Medicaid is
the state-federal health-care funding program.

The settlement also resolves claims brought by 43 state
attorneys general over the company’s marketing and sales
practices in connection with Vioxx, Merck officials said in
their statement. The states will share about $202 million. The
federal government will get $426.4 million.

Litigation over reimbursement for state Medicaid programs
continues with seven states, the company said.

In the only case over the Medicaid claims to go to trial, a
federal judge in New Orleans concluded last year Merck didn’t
have to pay $20 million in damages over claims it misled state
officials about Vioxx. Merck won judgments in three states,
according to spokesman Ronald Rogers.

Dropped Appeal

Louisiana’s lawyers decided to drop their appeal of that
ruling and the state will receive more than $9.7 million as its
share of settlement of Medicaid claims over Merck’s Vioxx
marketing, officials said in a statement yesterday.

The company agreed in 2008 to pay $58 million to settle
claims by 29 states that the company’s TV ads for Vioxx were
deceptive and hid the drug’s health risks. Under that accord,
Merck officials have to submit all future TV ads to the FDA for
review.

As part of the settlement announced yesterday, Merck also
agreed to set up a monitoring program to insure compliance with
federal laws and regulations in connection with the marketing of
its drugs, the company said.

The Louisiana case is State of Louisiana v. Merck Sharp &
Dohme Corp., 05-3700, U.S. District Court, Eastern District of
Louisiana (New Orleans).